AEW UK REIT (AEWU) has withdrawn from the contest for Alternative Income REIT (AIRE), stating it has no intention of making a firm offer after failing to secure the backing of AIRE's largest shareholder, Glenstone.

In a Rule 2.8 statement released on Wednesday to the London Stock Exchange (LSE), AEWU said Glenstone's public opposition to its proposed all-share acquisition, together with Glenstone's own cash bid for AIRE, had rendered a combination unworkable despite support from the AIRE board.

AEWU said it had attempted to engage with property investment firm Glenstone following its July announcement that it was considering an all-share offer for AIRE, but concluded that proceeding was no longer feasible.

As AIRE's largest shareholder, with a 25.4% stake, Glenstone's support was "fundamental" to the orderly implementation of any transaction combining the two REITs, AEWU said.

The withdrawal is the second time this year that AEWU has stepped back from a potential acquisition of AIRE. An earlier approach in March was abandoned in April after due diligence discussions failed to resolve key issues between the parties.

AEWU maintained that the strategic rationale for a merger remained compelling. The company said a combination would have created a larger, more diversified REIT with greater scale, lower operating costs and enhanced portfolio diversification. It also argued the transaction would have been earnings accretive while supporting its current annual dividend of 8p per share.

All eyes will now be on Glenstone's bid for AIRE. In July, Glenstone increased its acquisition offer for AIRE to £57.4m, putting forward what it called a 'final' offer for the real estate investment trust, a London-listed REIT with a market capitalisation of roughly £60m.

AIRE has previously urged shareholders to reject Glenstone's proposal, arguing that it materially undervalues the company and would hand control to Glenstone without an appropriate takeover premium. According to AIRE, the indicative value of Glenstone's offer equates to around 70p a share, compared with a reported net asset value of 83.3p per share.

Under UK Takeover Code Rule 2.8, AEWU is now restricted from returning with a fresh offer unless specific circumstances arise, including the emergence of a competing bidder, the withdrawal of Glenstone's proposal with AIRE board support, or another material change in circumstances.

The development leaves AIRE shareholders facing a choice between Glenstone's discounted cash offer and backing the board's standalone strategy, while removing what many investors viewed as the most strategically attractive consolidation option currently available in the UK real estate investment trust sector.

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